Related party status and foreign exchange limits shaped insolvency claims, security rights, and resolution plan scrutiny.

The article explains that a claimant was treated as a related party under the Insolvency and Bankruptcy Code because it exercised downstream control and could influence board composition. It also notes that the HSBC-related claim was rejected because the payment under the facility was made by another entity and no assignable debt from a formal guarantee was shown. On security, rights obtained through subrogation or assignment did not confer secured creditor status over immovable property in India without compliance with foreign exchange restrictions and lawful transfer of the underlying security. The claim was confined to the amount actually paid under the FEMA notification, and post-facto RBI approval could not enlarge it. The resolution plan and CoC distribution decision were left undisturbed.

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Issues: (i) whether the appellant was a related party of the corporate debtor within the meaning of the Insolvency and Bankruptcy Code, 2016; (ii) whether the rejection of the claim relating to the HSBC facility was sustainable; (iii) whether the appellant could be treated as a secured creditor in respect of the immovable properties of the corporate debtor; (iv) whether Notification No. FEMA.29/RB-2000 dated 26.09.2000 governed the claim and whether any post-facto approval of the Reserve Bank of India could enlarge the admitted claim; and (v) whether the challenge to the resolution plan and the Committee of Creditors' distribution decision disclosed any ground for interference.

Issue (i): whether the appellant was a related party of the corporate debtor within the meaning of the Insolvency and Bankruptcy Code, 2016.

Analysis: The appellant held control over a downstream corporate chain through its holding in Leader Universal (Mauritius), which in turn held the controlling stake in the corporate debtor. The statutory definition of related party under Section 5(24)(i) of the Insolvency and Bankruptcy Code, 2016, read with the meanings of holding company, subsidiary company and associate company under the Companies Act, 2013, was satisfied. The existence of de facto control and the ability to influence board composition also brought the appellant within Section 5(24)(l).

Conclusion: The appellant was correctly held to be a related party of the corporate debtor.

Issue (ii): whether the rejection of the claim relating to the HSBC facility was sustainable.

Analysis: The HSBC claim was founded on a hold cover arrangement, but the payment under that facility was made by Leader Cable Industry Berhad and not by Leader Berhad. In the absence of a formal guarantee by Leader Berhad in respect of HSBC, no assignable debt in relation to that facility could be shown to have passed to the appellant.

Conclusion: The decision rejecting the claim relating to HSBC was rightly sustained.

Issue (iii): whether the appellant could be treated as a secured creditor in respect of the immovable properties of the corporate debtor.

Analysis: The security originally stood in favour of the Indian lenders. Upon invocation of guarantees and payment by the non-resident guarantor, the rights claimed through subrogation and assignment could not, without Reserve Bank of India permission, extend to immovable property situated in India. Section 31 of the Foreign Exchange Regulation Act, 1973 controlled the acquisition of such interest, and the assignment deed did not show transfer of any underlying security over immovable assets. Consequently, the appellant could not derive secured creditor status in relation to the immovable properties of the corporate debtor.

Conclusion: The appellant was not a secured creditor in respect of the immovable properties of the corporate debtor.

Issue (iv): whether Notification No. FEMA.29/RB-2000 dated 26.09.2000 governed the claim and whether any post-facto approval of the Reserve Bank of India could enlarge the admitted claim.

Analysis: The notification applied to the claim arising from reimbursement to a non-resident guarantor and capped recovery to the rupee equivalent of the amount paid by the guarantor. The attempt to admit interest far beyond the amount actually paid was inconsistent with that cap. The claim could not be enlarged by seeking post-facto approval where the statutory and regulatory framework itself imposed a limit on the amount recoverable.

Conclusion: The notification was applicable, the claim had to be confined to the amount actually paid, and post-facto approval could not validate the excess claim.

Issue (v): whether the challenge to the resolution plan and the Committee of Creditors' distribution decision disclosed any ground for interference.

Analysis: The resolution plan had been approved by overwhelming voting share. The distribution mechanism adopted by the Committee of Creditors and the direction keeping the plan subject to the outcome of pending appeals did not disclose any legal infirmity. No ground under the Insolvency and Bankruptcy Code, 2016 was made out to interfere with the commercial decision of the Committee of Creditors.

Conclusion: No interference was warranted with the resolution plan approval or the Committee of Creditors' distribution decision.

Final Conclusion: The appeals were disposed of by sustaining the related-party finding, upholding rejection of the HSBC-related claim, restricting the admissible claim to the principal amount actually paid, denying secured creditor status over immovable properties, and leaving the approved resolution plan substantially intact, with consequential redistribution to follow the appellate determination.

Ratio Decidendi: A claimant deriving rights through subrogation or assignment cannot assert secured creditor status over a corporate debtor's immovable property unless such security interest is lawfully created or transferred in compliance with the governing foreign exchange restrictions, and a regulatory cap on reimbursement limits the admitted claim to the amount actually paid.

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